Bushido, the warrior code says:
1. Think of what is right and true.
2. Put the science into practice.
3. Become acquainted with the arts.
4. Understand the negative and positive qualities in everything.
5. Learn to see everything accurately.
6. Become aware of what is not obvious.
7. Be careful even in small matters.
8. Don’t do anything useless.
This is about items 4, 5, 6, 7, and 8 for people who dabble in economy like me.

The biggest problem in public analysis is the economic illiteracy of mainstream media, congress, president and neo-liberal economists who confuse the budgets of USA (the currency issuer) with budgets of everybody else (currency users). Scare words like “unsustainable debt”, “living beyond our means”, “debt crisis” etc. are used and comparisons made to household budgets, a totally incorrect analogy. The dollar is basically a token that keeps the economy running.
Modern Monetary Theory is true. Lots of data is in conformity with it. Deficits are good, surplus is bad, government debt implies private sector wealth, national debt need not be paid back, USA does not need taxes to spend, the (government_debt/GDP) means the same thing as (private_wealth/GDP) for a monetarily sovereign nation, China does not fund our economy, inflation is not a risk until full employment is reached, USA can afford to bailout the states and stop all austerity. Almost everything said in the mainstream media is wrong. The congress and the president repeat talking point economics as does Fox News. It is a shame!
Income taxes play a minor role in macroeconomics. There is no urgency in fixing taxation. It is a major distraction to allow any useful action. Immediate deficit funding is what is required. Taxation has a role in income equality and inflation control and can be attended to later because right now the plutocracy is in control. Government creates money and the economy uses it.

http://pshakkottai.wordpress.com/2011/11/23/how-the-economy-works-a-diagram/
a) Federal Deficits – Net Imports = Net Private Savings is strictly true.

Government creates money and the economy uses it. Government “debt” is the sum of all deficits and appears on one side of the equation (should be renamed “tbed”) whereas the private sector “debt” means negative savings. Government_ deficit is the source of money.
Government “debt” is the same as private savings. These are in the form of the government_ bonds held by citizens, pension funds and so on. If the national debt is paid off lots of citizens will be unhappy. The interest also flows into the private sector. The two key equations in economics which apply to any system of government are a) and b):

A numerical proof of (a) is shown in figure 4 of

http://pragcap.com/resources/understanding-modern-monetary-system
b) Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports.
The GDP has been approximately 5 times government spending.
Actual data is in
http://pshakkottai.wordpress.com/2011/10/16/
http://www.davemanuel.com/charts2/surpluses_and_deficits_1940-2011.html shows deficits have been quite common (58 deficits out of 70 years).

The household net worth of USA is $58.5 Trillion.The national debt is very close to it.

“The currency issuer is the monopoly producer of money and, just as every asset has a liability, also results in government liabilities. The issuer’s liabilities, or “debt”, is a digital account of the currency supply used by the currency users. To a fiat currency issuer, the currency supply is a digital accounting tool, not an asset in and of itself. The currency supply is simply the bookkeeping records corresponding to all the currency users’ savings in banknotes, deposits, and treasuries.
Money functions as both a store of value and a medium of exchange. When users acquire dollars they can spend them for items in the marketplace or choose to save them as banknotes, deposits, and treasuries.
The more users choose to save the more “debt” the issuer takes on. A common misconception is that currency issuers “borrow” money. The issuer does not borrow because it is the monopoly producer of the currency – the money that currency users spend or save. This is simply double entry accounting.
Savings by currency users, domestic or foreign, is a straightforward concept on an individual level but becomes counter intuitive on a macro level.” from

http://dollarmonopoly.blogspot.com/p/issuer-user-paradigm.html ,

which has nice sketches to explain MMT.

Another proof of MMT. This is a plot of gross national wealth on the x axis plotted vs. the same quantity in the same year minus govt deficit minus External balance. The years start at 1960 and end at 2011.The plot combines BEA Section S A007 S.7 a Federal Govt and A003 S.3 .a. Households and Nonprofit Institutions Serving Households. (FL152090005 minus FL312090095 minus FL262090095) is the value along the y axis which agrees with the household net worth FL152090005. Each (deficit plus net export) adds to peoples’ wealth. The dollars are current values not adjusted for inflation.

Another way of thinking about the plot is as a plot of actual wealth on the x axis compared to the predicted wealth calculated using the MMT equations of balance which is also used by

http://www.bea.gov/national/nipaweb/Ni_FedBeaSna/DownSS2.asp?3Place=N

The xl files were downloaded from the above website.

(Federal Deficits = Net Private Savings+ net imports), applies to USA and other nations that have their own currencies. Both federal deficits and net exports add to private savings.

Comments

Bush_Wacker's picture
Bush_Wacker 2 years 32 weeks ago
#1

This is facinating. I know what I'll be studying all weekend. Thank you!

Dr. Econ's picture
Dr. Econ 2 years 31 weeks ago
#2
Quote pshakkottai:...

I'm not sure what your point is. You don't like fiat currencies? You want to go back to the gold standard? I mean, come one, you must have heard all the arguements against those positions.

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